Legislature(1999 - 2000)
04/04/2000 02:00 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 339
An Act authorizing the Alaska Commercial Fishing and
Agriculture Bank to make loans relating to tourism and
development or exploitation of natural resources.
Co-Chair Mulder explained that the legislation would expand
the lending authority of the Commercial Fishing and
Agriculture Bank (CFAB) and would enable it to make loans to
Alaskan small business enterprises involved in natural
resource development and tourism. Presently, CFAB makes
loans to Alaska residents engaged only in commercial
agriculture or fishing. The bank seeks expanded authority
to provide financing opportunities to small Alaskan business
entrepreneurs who generally have trouble obtaining
commercial loans because of their relative small size and
lack of financial experience.
Co-Chair Mulder noted that currently, CFAB's loan portfolio
is very narrow and susceptible to ups and downs of the
market. The bill would allow CFAB to make loans to natural
resource development and also tourism.
Co-Chair Therriault MOVED to adopt the committee substitute,
1-LS1285\I, Utermohle, 4/1/00, as the version of the
legislation before the Committee. [Copy on File]. There
being NO OBJECTION, it was adopted.
ED CRANE, PRESIDENT, COMMERCIAL FISHING AND AGRICULTURAL
BANK (CFAB), ANCHORAGE, stated that when the bill was
originally drafted, "general" language was used to provide
as much flexibility as possible. Some of that language has
been found to be unacceptable. Consequently, loan limits
were added.
Mr. Crane noted that the House Finance Committee substitute
changes some of the original language. He outlined changes
made to the proposed committee substitute that would make
the bill more specific.
Mr. Crane explained that the Alaska State Legislature
created CFAB in AS 44.81 in 1980. The statute governs
CFAB's operation and provided for its accountability to the
Legislature and Administration. Because CFAB is
incorporated under that statute, it requires legislative
approval for any changes in operational authority.
Twenty years ago, limited access to commercial financing by
resident Alaska commercial seafood harvesters, processors
and farmers, stimulated the need for CFAB as a private
cooperative. The State of Alaska responded by providing
initial capital through the purchase of $32 million dollars
of special preferred stock in 1980. CFAB began making
monthly payments in 1991 to the State, repurchasing
increments of the stock. In September of 1998, the stock
repurchase agreement was completed as specified in statute
and today CFAB is owned solely by its past and present
borrowing members.
Mr. Crane continued, in 1986, the Alaska Supreme Court
identified CFAB as a private entity. AS 44.81 states that
it is not subject to the Alaska Cooperative Corporation Code
or the Alaska Banking Code. It pays federal and state
corporate income tax, state auditing fees and is subject to
legislative audits. In short, CFAB is now a private lender
operating within the free enterprise system with limited
ties to the State of Alaska.
CFAB's auditors, from both the public and private sector,
give the bank favorable reviews but consistently note the
concentration in agricultural and fishing industry loans
resulting in an unusual level of risk exposure and
vulnerability to the ups and downs of the industries.
Representative Grussendorf asked if the only new ability
granted in the proposed legislation was that to loan to
tourism. Mr. Crane replied that it would be to either
tourism and/or operators in the natural resources.
Representative Grussendorf asked if there would be a limit
on how each company could borrow. Mr. Crane pointed out
that there are no statutory limits on the size of a loan
that can be made for fish and agriculture purposes.
Representative J. Davies observed that this would be a
lending operation chartered by the State. He asked the
requirements to become a member of the bank to qualify for
borrowing. Mr. Crane explained that CFAB is operated as a
cooperative with the customers as owners. "Member" is
defined as one of the stockholders of the board. Any Alaska
resident who is engaged in commercial fishing or agriculture
can become a member by purchasing one share of stock.
Representative J. Davies interjected that CFAB is a
cooperative lending organization.
Co-Chair Therriault reminded member's from where the entity
originally came from. The limited entry system had just
started and it was important that the State guarantees that
Alaskans had access to capital so that they could get the
permits and keep them in Alaska's hands. Co-Chair
Therriault suggested that the original concerns have been
diminished at this time. There is no shortage of loan
programs in State government. He did not see the compelling
reason to implement the proposed legislation.
Mr. Crane commented that it has not been a problem in recent
years. He agreed that the same circumstances do not appear
to exist in relationship to tourism. The bill is a
defensive effort by CFAB. The limited entry system does not
have the same concerns as it did 25 years ago. Today, it
has greater concerns. Many of the individuals in rural
Alaska who were initial recipients of the loan are now
reaching an age where they want to retire. Many of them now
want to sell their permit. The needs have changed. He
believed that there is a need to continue the support for
Alaska resident's ability to buy limited entry permits. Co-
Chair Therriault agreed that it is important to keep them in
Alaskan's hands. He voiced concern with expansion of the
operation. Mr. Crane clarified that CFAB must build
diversification.
Co-Chair Mulder spoke to the State's compelling interest.
He commented that CFAB has taken on a new life of economic
expansion and opportunity. He noted that there is a lot of
frustration among the Alaskan people who are attempting to
get the smaller loans. The loans that CFAB is proposing are
low-level loans which are not in the best interest of most
banks.
Co-Chair Mulder pointed out currently, only CFAB can loan on
the limited entry permits. He pointed out that there is a
compelling reason, as the State interests are at stake. Mr.
Crane added that CFAB is acting as an agent for the State.
There is no way to limit that privilege to one class of
private lender.
Co-Chair Mulder pointed out that limited entry and CFAB won
the case with the Internal Revenue Service (IRS) to retain
control of the permits. To open that up to outside lenders
would jeopardize the direction which the State intended to
go.
Vice Chair Bunde agreed that this is a unique Alaskan
program. He asked if there were similar programs like this
available through other states. Mr. Crane replied that the
only one he was aware of was through a lending institution
in Canada.
(TAPE CHANGE, HFC 00 - 99, Side 2).
Mr. Crane stated that the proposed bill would provide that
CFAB continue to be a viable entity.
Vice Chair Bunde suggested if it would be more accurate to
change CFAB from a "bank" to a "revolving loan fund". Mr.
Crane replied that would not be a move that CFAB would make
hastily. He noted that CFAB has not yet fully considered
all the legal documentation such a transition would require.
Vice Chair Bunde commented if supporting the legislation
would be "questionable" given the Legislature's commitment
to encouraging privatization.
Representative Foster inquired if there was a mechanism
included in the proposal to cover concerns for bed and
breakfast associations. He asked if the board membership
would change. Mr. Crane thought that the legislation would
address that concern. Currently, the board consists of
seven people; two members appointed by the Governor and the
other five elected from the membership.
In response to Representative Williams, Mr. Crane reiterated
the original purpose of CFAB to insure that Alaska resident
fishermen had sufficient access to capital to maintain
participation in Alaska's fisheries. Representative
Williams inquired if the banking community supported CFAB at
this time. Mr. Crane replied those entities are "waving
their arms" with concern about the legislation. However, at
the same time, there are joint ventures happening with the
State.
Representative Austerman pointed out that there are many
commercial fishermen now considering the charter boat
tourism industry.
SUSAN SPRINGER, (TESTIFIED VIA TELECONFERENCE), HERRING BAY
MERCANTILE, TOURIST BUSINESS, SELDOVIA, spoke in support of
the legislation and urged Committee support to extend the
lending authority of CFAB to include resource development
and tourism.
She suggested that the legislation was the most important
thing that Alaska could do to help small businesses so to
have greater access to low interest business loans. The
existing loan process needs to be streamlined. She noted
that the conventional banking institutions in Alaska are not
serving the small business people.
Ms. Springer addressed her impressions of CFAB:
? CFAB is well respected for its support of small
business development through the Fisheries
Business Assistance Program;
? Not many of the state-funded small business
assistance programs work as effectively as CFAB;
and
? Access to start-up and operating capital is one of
the primary challenges facing small Alaskan
entrepreneurs trying to establish themselves in
business.
Ms. Springer pointed out that CFAB serves a "niche" to a
specific clientele. It will not pose a threat to the
banking institutions. She noted that CFAB shareholders are
all Alaskan's and will continue to be Alaskan and that they
have Alaska's interest at stake. She emphasized that
passage of HB 339 would give entrepreneurs a "shot in the
arm".
Representative J. Davies MOVED an amendment to Page 4, Line
28, deleting "tourism" and inserting "tourists".
Representative Moses commented that if the bill passes, it
would allow CFAB the authority to move more into the rural
areas to provide loan financing for tourism facilities. He
noted at present, CFAB could not finance a loan for a
charter boat. He stated that 99% of the financing
undertaken in the commercial fishing business is done in the
Seattle area. Representative Moses added that the majority
of the fishing industry is done in Seattle because Seattle
is where most of the head business are located such as
processor parent companies. He interjected that definitely
will not change with the Wells Fargo Bank take-over.
Representative Foster reiterated his concern about the
composition of the Board's makeup. Mr. Crane explained that
the Board would also be expanded. Currently, the Board
functions with an oversight role. The Board takes no part
in the loan decisions; it only approves basic policy and
standards. CFAB will acquire additional expertise and that
the Board is 100% behind the expansion.
Co-Chair Mulder MOVED to report CS HB 399 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal note.
Representative Williams OBJECTED stating that the bill would
compete with the private sector. Following further
comments, Representative Williams WITHDREW his OBJECTION.
There being NO further OBJECTION, it was so ordered.
CS HB 399 (FIN) was reported out of Committee with a "do
pass" and with a new zero fiscal note by Department of
Community & Economic Development dated 4/3/00.
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